At Last: Florida Adopts Economic Nexus Legislation
In June 2018, the U.S. Supreme Court handed down its decision on South Dakota v. Wayfair, Inc. (Wayfair), overturning the physical presence rule articulated in Quill v. North Dakota (Quill) and holding that states may charge sales tax on purchases made from an out-of-state seller even if the seller does not have physical presence in the taxing state. Since this landmark decision, a vast majority of states have adopted economic nexus provisions, with thresholds that, if reached, require remote sellers to pay tax in the jurisdiction.
For years, Florida sidestepped economic nexus legislation to avoid any negative effect on the state’s “business-friendly” reputation. Even after nexus legislation for remote sellers was passed in 1987, it was not enforced (also, the 1987 legislation was nullified by the U.S. Supreme Court’s decision in Quill in 1992). However, Florida businesses have pushed for lawmakers to level the playing field by requiring remote sellers to collect sales tax in the aftermath of Wayfair.
Finally, on April 19, 2021, Florida became the second-to-last state to adopt such provisions as Gov. Ron DeSantis signed Senate Bill 50 into law. Thus, effective July 1, 2021, out-of-state sellers and marketplace providers will be required to collect Florida sales and use tax.
The legislation requires remote sellers with no physical presence in Florida to register with the Florida Department of Revenue (DOR) and collect and remit sales tax if the seller has a “substantial number of remote sales” in the state. This economic nexus threshold is $100,000 of taxable (as opposed to gross) sales during the previous calendar year with 2020 as the initial threshold year. Thus, to determine whether a remote seller has met the threshold on the effective date, the seller’s non-marketplace sales during 2020 are compared against the threshold. Unlike some states, there is no additional threshold for nexus-creating transactions in the state.
The legislation also requires certain “marketplace providers” who have either a physical presence or economic nexus in the state to collect and remit sales tax on behalf of third-party sellers. “Marketplace provider” is defined as a person who facilitates a retail sale by a marketplace seller by listing or advertising for sale by the marketplace seller tangible personal property in a marketplace and who directly, or indirectly through agreements or arrangements with third parties, collects payment from the customer and transmits all or part of the payment to the marketplace seller, regardless of whether the marketplace provider receives compensation or other consideration in exchange for its services.
For remote sellers making both direct and marketplace sales in Florida, sales made through and taxed by a marketplace provider do not count toward the $100,000 economic nexus threshold.
There is incentive for businesses to register to pay sales and use tax in Florida sooner rather than later. Florida’s legislation includes a provision to protect noncollecting marketplace sellers who may have had a physical presence in Florida by storing inventory in the state prior to the July 1 effective date. Further, remote sellers with economic nexus will not be exposed to tax, penalties, or interest due on remote sales that occurred before the effective date as long as they register with the Florida DOR before October 1, 2021.
Businesses making remote sales should review 2020 sales into Florida to determine whether the $100,000 sales threshold has been reached. Further, businesses that are considered marketplace providers under this legislation should review the taxability of sales into Florida and have methods in place to accept exemption certificates from exempt purchasers.
For assistance complying with Florida’s economic nexus legislation or to obtain additional information, reach out to your BKD Trusted Advisor™ or submit the Contact Us form below.